Facebook has frustrated me for a long time: they have such huge reach and engagement that I’ve thought that Facebook should be entering more spaces, rather than just limiting itself to ads on the current product. Facebook has billion dollar opportunities in payments, commerce, television and local, just to name a few.
But Facebook has been laser-focused on mobile. (The last time I interviewed at Facebook, I was told that my ideas were “too big” for Facebook.)
With the hiring of Stan Chudnovsky to work on Messenger (and presumably payments within Messenger) with David Marcus, it shows that the company might finally be looking to diversify beyond the core product. (Stan worked for David at PayPal.)
In much of the developing world, an ad-supported business is unrealistic today. There are a number of reasons for this:
Purchasing power. If you make $1 a day, it’s hard to develop an ROI to advertise to you.
Lack of audience. Much of the audience still isn’t online. (Though Facebook is working heavily on that.)
Lack of infrastructure. Without agencies and similar infrastructure, the complex nature of advertising models is hard to pull off. (Not that a new model can’t be invented — it should — but that takes time.)
Payments is a natural fit for Facebook. People all over the world have to pay. And taking even a penny or two on a transaction could easily dwarf revenue from ads.
Facebook’s best play here is international. In the U.S., there are very well established payment systems. Credit cards are ubiquitous and card networks dominate. It’s a hard market to displace, even at Facebook’s scale. But bring payments into a greenfield opportunity and Facebook has a real chance to dominate.
In the U.S., there are social payment opportunities. Venmo, which David acquired for PayPal, has shown an emerging behavior that has huge potential when paired with the Facebook firehose.
Facebook also has a good team; David and Stan are both entrepreneurs. Working at PayPal was (almost) as odd a fit for them as it was for me. It’ll be interesting to see what they can accomplish when they’re given resources within a company that truly values innovation.
Disclosure: I briefly worked for Stan and David at PayPal, until I decided that PayPal would never be able to move at the pace that I wanted it to.
More revenue for Wildwood. It gets to keep all of the revenue generated. In a typical Groupon deal, Wildwood would get about $15 for each $50 gift certificate sold. Here, it keeps the entire $30. Given that food costs are typically 30% of a restaurant’s expenses, Groupons are break-even at best just on incremental cost.
More restrictions on redemptions. Groupons usually have longer redemption times and fewer restrictions on redemption. They are often valid for a year and can be used at almost any time. These certificates are only valid for dinner on Sunday, Monday and Tuesday and not valid for alcohol. It’s essentially a yield-management play, used to fill seats when the restaurant would otherwise be empty. Some restaurants use OpenTable’s Dining Rewards to accomplish this. These factors combine to increase the restaurant’s profitability on the deal.
More qualified customers. The restaurant is essentially reaching people who have already expressed some interest in it. Some of these are undoubtedly existing customers.Groupon brings in a much broader range of customers. That is both a blessing and a curse: some will be potentially new customers who will become repeat visitors; some will just be deal seekers who are unlikely to return. For many businesses, the primary market area is a 5-mile radius. Groupon’s coarse geographic targeting amounts to casting too broad a net for many local businesses.
No online purchases. The deal requires that customers visit Wildwood to buy and pick up the gift certificate. This is both good and bad: it means that customers are more qualified because they have to visit twice. They are more likely to live nearby and thus more likely to be repeat customers. But it also serves as a significant deterrent to purchase.
Limited viral distribution. Wildwood may reach some new prospects as other retweet/share the link. Twitter accounts like EaterPDX sometimes share such announcements. At the time of this writing, two people had retweeted the offer, for an additional 1,000 potential impressions. But it’s not likely to spread as virally as deals on Groupon and LivingSocial do. Both platforms offer built-in financial incentives for sharing deals with others.
I’ll check in with the business later in the week to see if they’re willing to share the results.
As I wrote earlier, businesses and consumers are directly connecting with each other online. In some ways, you can consider Groupon an arbitrage business — using its skill in marketing and online customer acquisition to deliver traffic to local businesses. (Much like ServiceMagic and 800-DENTIST.) As local businesses get more sophisticated and adopt tools like Facebook and Twitter, this will put margin pressure on Groupon and its peers.
Earlier in this series, I talked about the importance of business and consumer engagement in the success of local search. Here are some statistics based on research I conducted in the Portland market.
Staking out a presence online is the most basic step, and it seems that most businesses are taking this step. With the exception of foursquare, all of these numbers are substantially higher than I expected.
86% of businesses I looked at had a Web site. The quality of the Web sites varied tremendously, but generally included business location, contact information and hours. Some included sample menus. Most weren’t regularly updated. For businesses that had Twitter and Facebook presences, links to those sites were usually provided. A few embedded Twitter feed widgets right on the home page.
Claiming presence on Google, Yelp, Facebook and foursquare
“Claiming” a page on local search sites that consumers use provides a number of benefits that vary by site, including the ability to edit your map position, enter information such as hours of operation, post special offers, see metrics about visitors to your page and respond to reader reviews. Perhaps the most important benefit is to keep competitors and malicious users from messing with your page. Claiming is a relatively low-effort activity.
Foursquare lagged with only 5% of businesses claiming their foursquare page.
Twitter does not provide a default presence for businesses, yet 55% of businesses I looked at had a Twitter presence. Many of these were regularly updated with information on specials, events, industry news and closings. Several food carts used their Twitter presences in place of Web sites. See my earlier post, Twittering up some dosas. Several businesses had abandoned their Twitter accounts and were not included in the charts.
44% of businesses I looked at had a presence on Facebook. “Presence” varied, because Facebook has offered various tools over time and businesses have adopted Facebook in various ways. I’ve linked to examples of each:
Profile page – Businesses set themselves as if they were people and were friended as if they were people.
Group – Businesses created a group. Customers joined these groups.
Page – Businesses created a “Page” which customers could originally “Fan” and now “Like”.
Places page – Businesses in theory automatically have a Places page which people can check into. In practice, finding these businesses can be difficult because Facebook’s search tools don’t deliver consistent search results.
Combined page – Businesses can merge their Page with their Places page. The combined page is the fullest featured one.
Twitter and Facebook combined
35% of businesses had both a Twitter and Facebook presence. For businesses on both platforms, the median followers was 424 on Facebook and 323 on Twitter. Some of these businesses used tools, such as Facebook’s Twitter sync, to feed the same information to both platforms.
Consumers are engaging with local businesses online.
This chart shows the range of followers on Twitter and Facebook. (These numbers are directly comparable.) The chart also shows the number of unique users who had checked into venues on foursquare. The ranges are quite wide: foursquare (1 to 2385), Facebook (9 to 4998) and Twitter (6 to 14027).
There was no clear pattern to the outliers; I expected this to be correlated to the size of the business, but it didn’t seem to be. The outliers also varied by platform.
The medians from the above chart are summarized below. I also added the median number of Yelp reviews.
Although the numbers may not seem large in the absolute sense, they represent a highly targeted list of consumers who have expressed interest in a business and are likely to be repeat customers.
Checkins are still an emerging behavior. Here is the distribution of check ins on foursquare and Facebook:
The range on foursquare was 1 to 3695; on Facebook, it was 0 to 1587. The medians were 192 for foursquare and 63 for Facebook.
In every case, foursquare checkins were higher than Facebook checkins. Part of this can be attributed to the fact that foursquare has been around longer. Mostly, I’d attribute it to the selection bias of foursquare users and its game mechanics.
The range of checkins per unique user for Facebook was 1 to 4.06. The median ratio (on a venue basis) was 1.56; the median on a user basis is likely lower. Given that many venues require 5 or more checkins to get to mayor, this indicates that checkins are driven by a small proportion of users.
The above charts are based on a review of 100 local businesses in the Portland area, focused on high consumer value and frequency categories such as restaurants, bars and cafes. National chains were excluded from the sample. The sample included a mix of new and old businesses and businesses that ranged in size from food carts to large restaurants and brewpubs.
Google’s initial goal seems to be to get as many ratings as possible. To that end, it has made giving your opinion very easy. While Yelp encourages long-form reviews with a lot of detail, Google encourages basic star ratings. It’s primary Web interface makes it easy to quickly rate many places. Animations when you’ve completed a rating add a touch of fun to the process; once you’ve rated a business, the card flip over to allow you to write a review. The box is sized for about four sentences. Restaurants can also be sub-rated on Food, Service, Atmosphere and Value with a smiley face or frowny face.
On Android devices, a widget makes rating possible without launching the Google Places app.
Hotpot integrates with your search history on Google. This serves as a reminder to rate places you may have recently visited. Given Google’s vast query volume, this is another important differentiator.
Hotpot also shows ratings and reviews. While Google builds up its ratings and review corpus, the page focuses on aggregated reviews from other local sites, including Yelp, insiderpages, CitySearch and others. This has been a bone of contention for Yelp’s CEO, Jeremy Stoppelman.
Google hopes to make intelligent recommendations with all of your ratings data. Instead of having users sift through mounds of data to find the right business, Google does the lifting for you.
Recommendations come in two forms:
Recommendations based on your previous ratings. These span venue types. For example, Ikea was recommended for me because I rated Voodoo Donuts highly.
Recommendations based on the ratings of your friends.
The quality of recommendations seems to be hit-and-miss so far. Some seem entirely logical; others, like the Ikea recommendation were baffling.
A few examples to allow you to judge for yourself:
Recommendations don’t currently span metro areas. For example, if you rate places in San Francisco and then visit Chicago, the San Francisco data don’t seem to be used to make recommendations in Chicago. Google could use data like cuisine and price preferences to make at least a first cut at recommendations.
Recommendations are surfaced in a variety of places, such at the Google Places app, Google Maps and most importantly, Google search. In the screenshot above, you can see a recommendation embedded right in the search results.
This placement and personalization is an important differentiator that may drive users to Google Hotpot over Yelp and other competitors. Here, you can see a review from my friend Adam embedded in the search results:
Local is the perfect place for social search: It reflects how we do things In Real Life. Friends and family are often the first places we look for advice on restaurants and nightlife. Even reviews from people whose tastes we disagree with are helpful.
Google’s big challenge with social recommendations is the lack of a good social graph. I have exactly one friend feeding into my Hotpot recommendations. Other players such as Yelp and foursquare have piggy backed on Facebook’s social graph. Google can’t. And after last year’s Buzz privacy issues, Google is likely being more cautious in using other Google-collected data for a social graph.
A significant problem with the recommendations is that they aren’t used as a filter. This is especially important in mobile, where screen sizes are smaller and patience is usually shorter. In one search, the top results was a recommended place. The next results that were recommended were in positions 14 and 30. In between were places that were farther away and even some places that were closed.
When I searched for a restaurant in downtown San Francisco from my Android phone, the first personalized result was Adam’s Osha Thai restaurant, in position 16.
The stated purpose of Hotpot is a ratings and recommendations tool; the recommended places should be at the top of the list.
Google’s mobile search app (called Google Places) is in some ways comparable to Yelp, but Yelp’s mobile app is overall still a stronger experience.
Google Places provides a number of filters, including distance, rating, currently open, price and neighborhood. Additional filters (hidden behind the >>) allow you to search by cuisine or ambiance.
The “Open now” filter is especially important on mobile devices, where the focus is often on the here and now. In the listings, you can see annotations such as “Open until 10:00 pm” and “Opens at 4:30 pm” for places where Google has such data. Yelp’s hours data seems to be much more comprehensive.
There’s also a filter to see just the places that have been rated by friends. Oddly, there’s no way to see just the places that are recommended by Hotpot.
Places shows offers from the few businesses who are using Google Offers. There’s no way to show only businesses with offers.
Like Yelp, Facebook and foursquare, the Places app allows users to check in to a business.
The Places app doesn’t allow users to add new businesses or upload photos.
A digital to-do list
Hotpot allows you to “Save for later”, which is a great way to keep a list of places that you may want to visit later. These are integrated with Google Maps (on the desktop and in mobile) and shown as stars whenever you render a Google Map. It can be helpful when planning trips — you may discover that a shopping trip takes you near a restaurant that you’ve been meaning to visit.
I have been using Yelp’s bookmark feature (and Google My Maps before that) to track restaurants I want to visit; the integration with Google Maps may have me switch to Hotpot for that. It would be nice if Hotpot let you record why you saved it for later (e.g. recommended by Epicurious, have Groupon).
The biggest problem with Hotpot right now is that the overall experience doesn’t hold together. There are numerous brands being used, including Hotpot, Google, Maps and Places. In some places, clicking takes you to a map-based page, other places take you to a listings-based page. Icons and terminology are all over the board. The mobile app is similar. Maps, Latitude and Places all seem to point into similar experiences.
Listing freshness. Having up-to-date listings is an important part of the local search experience. Here, Google lags both Yelp and foursquare, especially when it comes to new businesses and non-standard places such as food carts. Hotpot doesn’t seem to be designed to address this problem. There isn’t an obvious way to add new listings. Hypothetically, Google could algorithmically find new businesses by looking at search patterns and traffic to sites like Yelp.
Engaged consumers. Yelp and foursquare have highly engaged users who significantly enhance the quality of the data.
Engaged businesses. Facebook and Twitter have engaged businesses who regularly update content about their businesses. Apparently Google offers a similar feature, but in more than a year since its launch, I’ve only seen one business use it. I found that while doing research for this post.
Tighter integration with Android. There are opportunities to improve the local experience by integrating better with the phone experience. For example, sending a message with location information could be more seamless.
Google definitely doesn’t have the most features or the most engaged audiences. It’s not (as far as I can tell) trying to build local communities centered around reviewing places.
But Google has three things that are hard to match: incredible distribution from Google search, deep pockets for promotions and Android. Facebook is the only company that can really come close to Google when it comes to distribution.
Google can surely solve the branding and consistency issues that make the current product experience frustrating. The bigger question is whether Google can develop a social graph that will really drive home the benefits of Hotpot.
Thanks to Mike Blumenthal for the pointer to Google’s business status updates.
Disclosure: I have several good friends who work at Google and went to high school with co-founder and CEO Larry Page. I’ve benefited from free drinks and other Google schwag at various Google promotions in Portland.